When a seller experiences financial hardship and finds themselves unable to afford their home, they decide to sell. If the home is worth less then what is owed on the mortgage the seller has some options:
- Walk away and allow the home to foreclose. (not good)
- Forbearance (short term)
- Work out a loan modification with your current lender.
- Short Sale
In my opinion, the best option is a short sale, which occurs when a bank agrees to discount a loan balance, due to an economic hardship on the part of the home owner.
The home owner sells the property for less than the amount owed on the loan, and turns over the proceeds of the sale over to the lender. In such instances, the lender would have the right to approve or disapprove a proposed sale.
A short sale is typically executed to prevent foreclosure. Lenders often choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owners, the advantages include avoidance of having foreclosures on their credit histories. Additionally, a short sale is typically faster and less expensive than a foreclosure. Junior lien holders, such as holders of second mortgages, HELOC lenders, and homeowner associations, may also need to approve the short sale. Frequent objectors to short sales include those who hold tax liens (income, estate or corporate franchise tax – as opposed to real property taxes, which have priority even unrecorded) and mechanic’s lien holders. It is possible for junior lien holders to prevent the short sale. While it is frequently common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance.
Can’t Afford It! Can’t Sell It! Can’t Refinance It! What now?
I’m the Broker of Morrison Residential LLC and I am also a pre-foreclosure specialist. I have sold numerous homes for people who are upside down on their mortgage and facing foreclosure.
If you have questions, we have answers.
“Is it better to file for bankruptcy or to be foreclosed?”
“What is a short sale and how can it affect my credit?”
“What about a Deed In Lieu of Foreclosure?”
“What should I do?”
Call me for an intelligent and informative free consultation.
602.999.8878
